The January 8, 2015 edition of the Los Angeles Daily Journal featured Robert McKennon and Scott Calvert’s article entitled: “Expanding Equitable Remedies in ERISA Cases.” In it, Mr. McKennon and Mr. Calvert discuss a new case, Gabriel v. Alaska Electrical Pension Fund, 2014 DJDAR 16590 (9th Cir. 2014) and also discuss equitable remedies generally in ERISA cases and, in particular, how the Ninth Circuit Court of Appeals has joined other circuits in allowing certain equitable remedies, most especially the surcharge remedy. Mr. McKennon and Mr. Calvert also explain how insurance claimants should go about proving equitable remedies. The article is posted below with the permission of the Daily Journal.

Case highlights importance of agent-broker distinction

Expanding equitable remedies in ERISA cases

One of the biggest changes in the ever-fluid law that is the Employee Retirement Income Security Act of 1974 was the expansion in the availability of claims for equitable remedies. In 2011, the U.S. Supreme Court, in Cigna Corp. v. Amara, opened the door to allowing claimants to seek monetary relief through equitable remedies in ERISA cases. With a recent ruling, the 9th U.S. Circuit Court of Appeals has expanded the available equitable remedies and set forth a road map for claimants when asserting the equitable remedies of reformation, equitable estoppel and surcharge.

Following the Supreme Court’s 1985 decision in Massachusetts Mutual Life Insurance Co. v. Russell, courts across the country grappled with the extent to which equitable remedies are available under ERISA. While equitable remedies were always technically available to ERISA claimants through Section 502(a)(3)(B), which allows an ERISA claimant “to obtain other appropriate equitable relief,” such relief was only available in some circuits, and even then only under “extraordinary circumstances.” Prior to Amara, the lower courts interpreted the Supreme Court’s 1993 ruling in Mertens v. Hewitt Assocs. as precluding the recovery of any monetary relief under Section 502(a)(3) because monetary relief was not considered to be equitable relief.

However, following Amara, courts expanded the availability of equitable remedies. Consistent with that trend, recently, the 9th Circuit withdrew an earlier decision denying the availability of the equitable remedy of surcharge in ERISA cases, and issued a new ruling consistent with the holdings of other circuit courts. The new ruling, Gabriel v. Alaska Electrical Pension Fund, 2014 DJDAR 16590 (9th Cir. 2014), is much more favorable to ERISA claimants and clarifies that surcharge, a form of equitable relief, is available to claimants under ERISA Section 502(a)(3).

While the 9th Circuit ruled that the district court was correct in holding that the plaintiff was not entitled to the payment of the pension funds he sought because his rights to those funds never vested, it also remanded one aspect of the case to the district court, but virtually instructed the lower court to deny that claim. However, the ruling is important because, by providing the equitable remedy of surcharge to ERISA claimants, the 9th Circuit aligned itself with the 4th, 5th, 7th and 8th Circuits in expanding the rights of ERISA claimants.

In the ruling, the 9th Circuit explained that Amara clarified that because ERISA Section 502(a)(3) allows a claimant to seek “appropriate equitable relief,” those remedies traditionally viewed as equitable were available.

For example, a claim of “appropriate equitable relief” may include “the reformation of the terms of the plan, in order to remedy the false or misleading information” provided by a plan fiduciary. The court explained:

“A plaintiff may obtain reformation based on mistake in two circumstances: ‘if there is evidence that a mistake of fact or law affected the terms of [a trust] instrument and if there is evidence of the settlor’s true intent’; or (2) ‘if both parties [to a contract] were mistaken about the content or effect of the contract’ and the contract must be reformed ‘to capture the terms upon which the parties had a meeting of the minds.’ Under a fraud theory, a plaintiff may obtain reformation when either (1) ‘[a trust] was procured by wrongful conduct, such as undue influence, duress, or fraud,’ or (2) a ‘party’s assent [to a contract] was induced by the other party’s misrepresentations as to the terms or effect of the contract’ and he “was justified in relying on the other party’s misrepresentations.” (Internal citations omitted).

However, while the Gabriel court reiterated the availability of the equitable remedy of reformation in ERISA cases, the court also clarified that the plan documents themselves must actually contain an error for reformation to be properly applied. It is not enough that the administrative record contains misinformation about the plan. The mistake must be in the plan itself, not in its administration. Absent an actual mistake in the plan documents, reformation is likely not available.

Next, the 9th Circuit held that equitable estoppel is another form of equitable relief available under ERISA. With respect to equitable estoppel, a fiduciary is held to what it promised and the claimant is entitled to the benefit consistent with that promise. However, in ERISA cases, enforcing equitable estoppel is not as simple as demonstrating that a promise for certain benefits was made; other conditions apply. As with a claim for reformation, the 9th Circuit explained that “a federal equitable estoppel claim in the ERISA context [cannot] contradict written plan provisions.”

This principle is consistent with the primacy that plan documents hold in ERISA cases. Given the important role that plan documents play in ERISA, the Court stated:

“Accordingly, a plaintiff may not bring an equitable estoppel claim that ‘would result in a payment of benefits that would be inconsistent with the written plan,’ or would, as a practical matter, result in an amendment or modification of a plan, because such a result ‘would contradict the writing and amendment requirements of 29 U.S.C. [Sections] 1102(a)(1) and (b)(3).’ … For the same reason, ‘oral agreements or modifications cannot be used to contradict or supersede the written terms of an ERISA plan.’” (Internal citations omitted).

However, the court did explain there was a difference “between oral statements that contradict or supersede the terms of an ERISA plan,” which are not enforceable, and “oral interpretations of a plan’s provisions that are not contrary to the plan’s written provisions,” and could be enforced if they offer interpretations of ambiguous plan provisions.

In addition, the court explained that to meet traditional equitable estoppel requirements, an ERISA claimant must demonstrate: “(1) extraordinary circumstances; (2) that the provisions of the plan at issue were ambiguous such that reasonable persons could disagree as to their meaning or effect; and (3) that the representations made about the plan were an interpretation of the plan, not an amendment or modification of the plan.” (Internal quotations and citations omitted.)

Finally, regarding the equitable remedy of surcharge, in which the claimant is placed in the position he or she would have been in but for the fiduciary’s breach of duty, the 9th Circuit reversed its previous, now-withdrawn, decision and noted that Amara allows a claimant to obtain surcharge relief. The 9th Circuit explained that to prevail on a surcharge claim, consistent with Amara, the claimant must establish a breach of fiduciary duty that caused his harm and is not necessarily required to show detrimental reliance. The court held:

“‘[A] plan participant or beneficiary must show that the violation injured him or her,’ but ‘need only show harm and causation,’ not detrimental reliance … [S]urcharge may be an appropriate form of equitable relief to redress losses of value or lost profits to the trust estate and to require a fiduciary to disgorge profits from unjust enrichment.”

The court then remanded the case to the district court to determine whether the surcharge remedy is “appropriate equitable relief” as it pertained to the plaintiff.

As Gabriel demonstrates, courts are using Amara to expand the ability of plan participants and beneficiaries to bring claims for equitable relief under ERISA, even to obtain monetary relief, not previously available to them.By confirming that surcharge is an available equitable remedy in ERISA cases, and providing a road map for obtaining monetary relief through reformation, equitable estoppel, and most especially surcharge, the 9th Circuit issued another plaintiff-friendly ruling.